If inflation is expected to be 5% htgher in the United Kingdom than in Switzerland, then

A. purchasing power parity would predict that the UK spot rate should decline by about 5%

B. the theory of purchasing power parity would predict a drop in nominal interest rates in the United Kingdom of approximately 5%

C. expectations theory would suggest that the spot exchange rates between the two countries should remain unchanged over the long run

D. the efficient market hypothesis suggests that no predictions can be made under a system of freely floating rates

Answer: Option A